Performance of the Middle East 'Data Analysis' Chapter

Since 2008, the real estate market in Kuwait has been continually declining. The reason why is because the economy was largely depending upon oil revenues. However, in 2010 the sector began witnessing an increase in prices. This is because of the Kuwaiti government was aggressively promoting the tourism industry. As developers are expecting a strong increase in foreign direct investment, due to the governments push to expand the sector. As a result, holiday and residential areas in Kuwait are continuing to boom. (Finkelstein)

In the housing industry, there are large numbers of shortages that are affecting prices. What has been happening is the residential sector has been facing restrictions over the last several years, surrounding building permits. As the government was slow to endorse them, which created a rush on new areas that were approved for development. At the same time, the government has placed various restrictions on property ownership. In this case, foreigners are prevented from owning any kind of property in the country. This is important because, it is showing how this restriction provides the ability to see substantial price increases. While simultaneously; making it challenging for investors to become involved in the market. (Finkelstein)

As far as commercial properties are concerned, they are facing a tremendous amount of declines. The reason why, is because of the excessive building that occurred during the boom. as, the market was: seeing increases in prices and a shortage from corporate customers looking for new spaces. Then, once the recession began, is when it became clear that there were tremendous amounts of overbuilding in the sector. This is important, because it shows how the real estate market in Kuwait, is facing a number of different cross currents that are affecting a variety of asset classes. (Finkelstein)

UAE

In the United Arab Emirates, they have been facing extreme amounts of pricing pressures. This is because the markets have been undergoing major shift from: the tremendous amounts of overbuilding that took place during the boom years. This has caused a backlog in the large number of available properties on the market. As a result, there has been considerable decline in variety of sectors throughout 2010. The below table illustrates the overall amount of weakness in the market during this time.

Amounts of Weakness in the UAE Real Estate Market

Property

Amount of Decline

Residential Homes

-6.3%

Apartments

-7.0%

Villas

-4.7%

Townhouses

-9.0%

This is significant, because it shows the overall amounts of frailty in the markets. As the large number of available properties is only continuing to increase. Evidence of this can be seen with a report that was conducted by the real estate firm La Salle. They found that the total number of new properties in UAE is expected to increase by 25,500 units in 2011. This is problematic, because it is showing the overall amounts of weaknesses will remain in the market for the foreseeable future. (UAE Prays for Housing Recovery 2011)

A good example of this can be seen by looking no further than Aldar Properties. As shares increased to an all time high of 15.00, then once the real estate market began to cool is when this decline became more severe (with prices falling to 1.50). The below chart illustrates the overall performance of the stock during this time. (Aldar Properties 2010)

Performance Alder Properties 2003 to 2010

This is significant, because it shows the how the company was seeing their stock price follow the trends in the industry. As the sharp increases, during 2007 and 2008 was the result of a speculative bubble that developed. Once this burst, it meant that the markets would have to wrestle with a tremendous amount of inventory on their balance sheet. as, this had an adverse effect on: earnings and the underlying profitability (with the company seeing a more gradual rise in profits once the world economy began to recover). This is important, because it showing how the UAE real estate market will continue to face a tremendous amount of challenges in the future. As the large excessive inventories will mean; that prices will continue to: remain stagnant for some time. (Aldar Properties 2010)

Jordan

As far as Jordan is concerned, the economy has been performing very well in 2010. As it is following a trend, that has taken place in many countries throughout the region.What is happening is the country's real estate market was strong until the financial crisis of 2008. At which point, prices began to decline by 15 to 20%. Then, in 2010 is when a sharp turnaround took place. as, buyers quickly began to re-enter the markets, looking for great bargains in a host of different asset classes ranging from: residential homes to apartment buildings. Part of the reason for this, is because Jordan has a number of different free trade agreements with the United States and other countries. This has helped to improve transparency and the ability of foreign investors to easily purchase properties. At the same time, the large increases in population are creating a need for affordable housing. (Obedient 2010)

There are also joint efforts between the government and businesses to help promote the market to foreign investors. This has had a positive impact upon demand, as a variety of property types are providing the potential for consistently increasing long-term growth. A good example of this can be seen in the hotel sector during 2010. In comparison with the rest of the world, as the global economy was struggling to overcome the various challenges from: the lingering effects of the global economic recession. However, this all changed in Jordan due to the increased efforts from: the government and the private sector to promote tourism. At the same time, these two entities had an impact upon changing foreign ownership regulations on a variety of different properties. For many foreign investors, this combination made various sectors such as the hospitality industry very lucrative. as, they could promote various packages to a host of tourists, while being able to reap significant rewards from owning the properties. At which point, the prices for hotel real estate would increase by 20% during 2010. This is significant, because it shows how this overall philosophy that has been adopted by: the business community and the government are helping to make owning various properties easier. Once this occurred, it meant that demand for a host of asset classes would increase. The large improvements in the hotel sector in one year are a sign of the overall strength of these markets. (Obedient 2010)

A good example of this strength can be seen by looking at Methaq Real Estate Investment Corportation. What was happening is the company experienced a sharp slowdown in earnings, which was reflected by the decline in their stock price in 2009. Then, in 2010 is when this would change, as the demand returned to: the market and prices began to increase. The below chart: highlights the overall volatility in the stock during this time.

Methaq Real Estate Investment Corporation

This is significant, because the volatility in the price of the stock from: 2008 into 2010, is illustrating the resilience of this market. As a result, the long-term perspectives are one of the best in This is because of: the favorable investment climate, reduced regulations, increased transparency and large population growth are creating sustainable long-term profits. Therefore, it would not be surprising to see the underlying strength continue for the foreseeable future. (Methaq Real Estate Investment Corporation 2010)

Israel

Israeli monetary authorities are worried that despite tighter land policies and repeated warnings from the Central Bank. That housing prices continue to rise, thus pushing the average price of homes upward. The reason for this increase in the price of houses is due to: strong economic growth, low interest rates and the long periods of relative peace in the country (despite the threats from neighboring nations). In some disputed areas in Israel, house prices will weaken (such as the Gaza Strip or the West Bank), yet many Israelis buy these properties as part of their patriotic duty.

As a result, Israel's residential property market has outperformed other countries in the region in 2009. However, it may lose some of its popularity after becoming one of the first to raise its interest rates since the global recession. As the Central Bank has begun to raise rates, which is a part of their strategy for: fight inflation. This is a part of concentrated effort to discourage loans for: mortgages, which intentionally may lead to a decrease in real estate property values in the future.

The restriction in land purchases has contributed to a drop in the number of apartments on the market. This is because.....